156 Mich. App. 19 401

N.W. 2d 375 (Mich. App. 1986)






Plaintiff's vehicle jackknifed and sustained extensive collision damage while it was being driven on hazardous winter roads on February 3, 1982, in Eureka, Missouri. Plaintiff promptly notified defendant of the accident and was advised by defendant to attempt to drive the vehicle back to Menominee County in Michigan. However, the vehicle could be driven only as far as Milwaukee, Wisconsin, where the damage was adjusted by defendant.


On March 22, 1982, defendant made an offer of settlement to plaintiff. Plaintiff rejected the offer, contending

that defendant refused to pay for total damages sustained, and that defendant had inappropriately applied a $1,000 deductible, contrary to the language of the insurance policy.


On April 30, 1982, approximately three months after the accident, plaintiff filed the instant suit in circuit court, alleging breach of contract (Count 1), negligence in adjustment (Count II), and intentional infliction of emotional distress in willfully failing to settle plaintiff's collision damage claim timely and properly (Count III). In addition to the damages recoverable under the policy for repair or replacement of the vehicle, plaintiff sought additional damages on all three counts for the following:


"A) Loss of use of the settlement amount;


"B) Default has occurred on the Note between Plaintiff and the North Menominee Credit Union under which Note the vehicle was pledged as security, and Plaintiff has incurred all costs incident thereto;


"C) Loss of use of the vehicle or its replacement with resulting loss of revenue normally generated by said



"D) Plaintiff's overall business has declined, and is continuing to decline, as a direct result of the loss of revenue from this vehicle;


"E) Storage charges have been incurred, and are continuing to be incurred, while the vehicle remains with the dealership in Milwaukee, Wisconsin, where it has been appraised by Auto-Owners."


Upon defendant's motion, the circuit court dismissed plaintiff's intentional infliction of emotional distress claim (Count 111), and struck plaintiff’s claims for the damages sought in A through D (hereinafter referred to as additional damages) in the remaining breach of contract and negligence claims, (Counts 1 and II).


In the instant case, plaintiff pled that, knowing the hardship which would be caused to plaintiff through the loss of his vehicle, defendant intentionally and willfully breached its contract by refusing to settle plaintiff's claim according to the terms of its contract with plaintiff. Liberally construing these allegations, we find that plaintiff alleged that defendant has breached its obligation to process plaintiff's claim in good faith. Thus plaintiff can seek damages for defendant's breach, subject to the limitations applicable to damages for breaches of commercial contracts.


Michigan follows the rule of Hadley v. Baxendale, 9 Exch. 341, 156 Eng.Rep. 145 (1854), that damages recoverable for breach of a contractual obligation are those that arise naturally from the breach or those that were in the contemplation of the parties at the time the contract was made. Thus, for example, lost profits resulting directly from the breach of the insurer's obligation under an insurance contract which affects a specific collateral enterprise of both parties are aware at the time of the agreement would be recoverable.


In the instant case, plaintiff alleged that defendant was aware of the fact that Plaintiff was involved in a small family trucking business and that the loss of the vehicle, or a replacement, would cause an extreme financial hardship to Plaintiff and his business. Thus, we conclude that Plaintiff has properly pled lost profits as an element of damages in his breach of contract claim.


With respect to the loss of use of the settlement amount, defendant's refusal to pay plaintiff's claim would logically result in a loss of the use of the settlement amount, at least until the time the settlement was paid or a complaint was filed, at which time the prejudgment statutory interest compensating plaintiff for loss of use of the settlement would be applicable if plaintiff prevailed. Thus we hold the loss of use of the settlement amount from the date it should have been paid until the date of the filing of the complaint can be said to have naturally arisen from the breach. Similarly, loss of the use of a vehicle and costs arising from the default on the note secured by the vehicle can also be viewed as natural consequences of defendant's failure to pay the settlement amount on a vehicle sustaining serious collision damage.


In summary, we find that damages in the breach of contract claim for lost profits, loss of use of the vehicle, costs arising from the default on the note secured by the vehicle, and loss of use of the settlement amount until the date of the filing of the complaint were improperly stricken. The claim for damages for loss of use of the settlement amount from the date of the filing of the complaint was properly stricken.


Affirmed in part, and reversed in part.